‘The Incidence of Fines on Cartel Dynamic Pricing’

Friday 27th November sees the long-awaited return of our delightful former colleague Anna Rita Bennato (Oxford Brookes University) who will be presenting ‘The Incidence of Fines on Cartel Dynamic Pricing‘, which she has co-researched with Franco Mariuzzo (ECO and CCP). An abstract for her seminar can be found below.

Abstract

With Regulation 1/2003 the European Commission D-G for Competition has introduced administrative fines on corporation turnover to punish any breach of Article 101 and 102 of the Treaty. To confine obvious adverse effects of a too harsh punishment fines have been limited to a thirty per cent cap of the undertaking’s worldwide turnover (Guidelines 2006/C 210/02). However, the assessment of the gravity is made on a case-by-case basis for all types of infringement. As a general rule, fines are calculated as a proportion of the value of sales.

In this paper we study the distortion in pricing that stems from the application of fines on turnover in an environment where cartels choose their optimal pricing under uncertainty and business cycles. Our model shows how in a dynamic setting fines may resemble the effect of an ad-valorem taxation. The effect of fines on prices varies depending on the position on the cycle (expected demand growing or falling).

We test our model using 328 weekly data on the Joint Executive Committee (JEC) and the econometric methodology suggested by Borenstein and Shepard (1996). While JEC was a legal cartel, in a counterfactual exercise we simulate the effect of the cartel being detected and fined on turnover.

 

Anna’s presentation takes place from 13:00-14:00 in the Thomas Paine Study Centre, Room 1.03. 

CCP Seminar: Antitrust as a tool for regulation: EU energy markets

The CCP’s Spring seminar series continues on Friday 1st March with our very own Burçak Yalcin (CCP and UEA Law School) presenting her research on ‘Antitrust as a tool for regulation: EU energy markets‘. An extended abstract for her seminar can be found below.

Abstract

The European electricity and gas markets have experienced significant changes since the idea of liberalisation was raised in the 1980s with the aim of creating well-functioning markets that ensure secure energy supplies at competitive prices, which are key to achieving growth and consumer welfare in the European Union (hereafter EU). To achieve this objective the EU decided to open up Europe’s gas and electricity markets to competition and to create a single European energy market. As a first real step, the first electricity Directive 96/92/EC was adopted in 1996, and the gas Directive 98/30/EC was enacted in 1998. In 2003, the legislative process took a major step forward with the adoption of the second electricity and gas Directives 2003/54/EC and 2003/55/EC attempting to create a competitive single European market. These Directives have made a significant contribution towards the creation of electricity and gas markets that are fully open to competition. Nevertheless, on the 10th of January 2007, the Commission published the final report on the Sector Inquiry[1] identifying a number of deficiencies, namely: a high level of market concentration in wholesale markets, an insufficient level of unbundling between network operations and supply activities, and thus the existence of vertical foreclosure. Regarding these findings, the Commission issued the so-called third legislative package in 2009 with namely the provisions of full ownership unbundling and third party access regime.

However, in spite of these regulatory steps, the liberalisation process has yet to successfully bear fruit. Consequently the Commission seeks to remove deficiencies of liberalisation by utilising competition law as a relevant vehicle.[2] This aim was stressed by the former Competition Commissioner, Neelie Kroes. She stated that ‘… I intend to use our competition tools actively to speed up the liberalisation process in gas and electricity markets’.[3]

With the modernisation of EU competition law, i.e. with the adoption of Council Regulation 1/2003 on the implementation of the competition rules laid down in Article 81 and 82 of the Treaty (Articles 101 and 102 TFEU) in May 2004, the Commission was granted a perfect tool to eliminate deficiencies of the energy markets through competition law. Article 9 of Regulation 1/2003, for the first time, entails a public settlement procedure where the Commission can conclude its investigations by rendering behavioural or structural commitments binding upon undertakings who suggest them, instead of issuing a prohibition decision, when the commitments address the Commission’s concerns over competition. Case law shows that the Commission tends to impose behavioural or structural remedies on the basis of Article 9 of the Regulation so as to conclude, in a short period of time, most of the investigations carried out into competition in the energy markets.

The presentation will first clarify the differences between prohibition and commitments proceedings in order to comprehend the possible reasons behind the approach of the Commission to conclude the investigations on the basis of Article 9, rather than Article 7 of the Regulation. Secondly, it will analyse the decisions of the Commission, in particular the cases of E.ON (Case COMP/39388-38389), RWE (Case COMP/39402), and ENI (Case COMP/39315) in which structural remedies were imposed. The aim of this analysis is to examine whether the Commission deliberately uses Article 9 of the Regulation in order to further regulate the markets as well as to create a well-functioning single European energy market by imposing structural remedies. Finally, the presentation will discuss the role of competition law and the Commission in the energy regulation by taking into account both the borders of and the interaction between competition policy and regulatory policy.

 

1.  Commission, ‘DG Competition Report on Energy Sector Inquiry’ SEC(2006) 1724.

2.  IP/06/1768 ‘The Commission takes action against Member States which have still not properly opened up their energy markets’ (2006); P. Kuoppamaki, Talus, P., ‘ Relationship Between General Competition Laws and Sector Specific Energy Regulation’ (2010) Vol.8 Issue. 1 Oil, Gas and Energy Law Intelligence (OGEL).

3.  Commission Press Release ‘Competition: Commission secures improvements to gas supply contracts between OMV and Gazprom’ IP/05/195 (2005).